Bitcoin price cheap below $40,000? The answer is hidden in derivative data

Bitcoin (BTC) price dropped below the $40,000 support on April 18, with a 15 percent correction in two weeks. This led to predictions that $30,000 could be seen again in the near term.

Meanwhile, Europe has become a cause for concern for investors under Know Your Customer (KYC) and Anti-Money Laundering (AML) laws, including proposed rules for “no custodian” private wallets. Some exchanges began to request additional information about their users, which made investors uncomfortable.

European regulation is troubling

The Economic and Financial Affairs Committee of the European Union Parliament voted on March 14 to ban or restrict Proof of Work (PoW)-based crypto assets, but the proposed change has been delayed.

More recently, in an email notification to users on April 13, Bitstamp cryptocurrency exchange informed its customers of the ongoing policy upgrades to the platform, and the exchange requested additional information.

Bitstamp now asks users for information such as nationality, place of birth, and tax residency, in addition to their annual income and documents proving the source of their cryptocurrencies.

On April 14, the nonprofit group Coin Center called the Securities and Exchange Commission’s (SEC) March 18 Amendments to the Definition of “Exchange” as “unconstitutional.” If the proposal becomes an SEC rule, decentralized platforms will likely be required to register as exchanges.

However, all is not negative for the industry as crypto-friendly names are making attempts to join the US government.

On April 15, U.S. President Joe Biden announced that he wanted to nominate law professor Michael Barr as the central bank’s vice president of oversight.

Barr served as the assistant secretary of finance for the Department of the Treasury under former President Barack Obama. He was previously on the advisory board of Ripple Labs from 2015 to 2017.

On the other hand, it makes more sense to measure Bitcoin derivatives data to get a clearer picture of how investors are positioned.

Margin investors expect bullish

Margin trading allows investors to leverage their positions by borrowing cryptocurrencies, potentially increasing their returns. For example, cryptocurrencies can be purchased by borrowing Tether (USDT) to increase risk.

On the other hand, Bitcoin borrowers can short sell cryptocurrencies when they expect a price drop. Unlike futures contracts, the balance between collateralized long and short-term transactions may not always be matched.

Bitcoin price cheap below $40,000? The answer is hidden in derivative data

Margin lending rate for USDT/BTC on OKEx exchange. Source: OKEx

The chart above shows that investors have recently borrowed more Tether, with the rate jumping from 13 on April 14 to the current level of 17. The higher the indicator, the more confident professional traders are in Bitcoin price.

The 20 level in the margin lending rate, reached on April 11, marks the highest value in six months and an increase.

Bitcoin options signal fear

However, last week it became difficult to predict the next move of the market as Bitcoin moved sideways around $40,000. Still, the 25% delta curve is considered an important sign when arbitrage tables and market makers overcharge for hedging up or down.

The 25% delta curve compares similar call and put options. This data will turn positive when fear prevails because the premium for the protective put option will be higher than for similar risk call options.

Bitcoin price cheap below $40,000? The answer is hidden in derivative data

The 25% delta curve for 30-day Bitcoin options. Source:

This indicator will rise above 8% if traders fear a Bitcoin price collapse. On the other hand, if there is excitement and a rise is expected, a negative 8% value should be seen.

As shown above, we entered “fear” mode at 8% on April 8, after 30 days of wandering in neutral territory. Bitcoin was already below $43,000 when the 25% delta curvature indicator turned into a downtrend.

Margin trading data despite negative indication from Bitcoin options; It shows that arbitrage desks and market makers are confident that the drop below $40,000 will reverse.

The OKX margin loan ratio showed professional traders boosted their bullish expectations after a 15% BTC price rally in 14 days. This data should be reassuring for those currently expecting a drop.

Regardless, there is no reason to ignore premium options trading. It is certain that the possibility of a price drop still remains strong. As a result, sometimes the best trade is to do nothing, wait and determine the direction of price action.

The views and comments expressed here are solely those of the author. It may not reflect the views of Cointelegraph. Every investment and trading involves risk. You should do your own research when making a decision.

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